<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-18653
COMAIR HOLDINGS, INC.
---------------------
Incorporated under the laws of Kentucky 31-1243613
(I.R.S. Employer ID No.)
P.O. Box 75021
Cincinnati, Ohio 45275
(606) 767-2550
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 10, 1999
----- ------------------------------
Common stock, no par value 95,630,778
1
<PAGE> 2
COMAIR HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NOS.
<S> <C>
PART I. Financial Information -
Consolidated Balance Sheets as of June 30, 1999 and March 31, 1999 .................................................. 3-4
Consolidated Statements of Income -
Three months ended June 30, 1999 and 1998 ...................................................................... 5
Consolidated Statements of Cash Flows -
Three months ended June 30, 1999 and 1998 ...................................................................... 6
Consolidated Statement of Shareholders' Equity -
Three months ended June 30, 1999 .............................................................................. 7
Notes to Consolidated Financial Statements .......................................................................... 8-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................................................................ 11-18
PART II. Other Information -
Item 6. Exhibits and Reports on Form 8-K ........................................................................... 19
SIGNATURE ........................................................................................................... 20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1999 MARCH 31, 1999
- ------ ------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $210,124,445 $171,003,535
Marketable securities
available for sale 107,044,150 85,240,815
Interest bearing investment 12,000,000 30,000,000
------------ ------------
$329,168,595 $286,244,350
Accounts receivable $ 11,919,900 $ 10,585,370
Inventory of expendable parts 17,047,221 17,310,814
Future tax benefits 16,759,040 15,756,205
Prepaid expenses 9,877,621 18,220,832
------------ ------------
Total current assets $384,772,377 $348,117,571
------------ ------------
Property and equipment at cost:
Flight equipment $408,068,126 $423,626,267
Maintenance, operations and
office facilities 10,292,722 10,292,723
Other property and equipment 60,312,869 53,061,509
------------ ------------
$478,673,717 $486,980,499
Less accumulated depreciation and
amortization 140,586,523 138,659,486
Less reserve for engine overhauls and
purchase incentives 15,901,007 16,152,320
------------ ------------
$322,186,187 $332,168,693
Construction in progress 5,859,091 3,706,593
Advanced payments and deposits
for aircraft 55,559,372 55,114,024
------------ ------------
Net property and equipment $383,604,650 $390,989,310
------------ ------------
Other assets and deferred costs $ 16,328,547 $ 11,647,009
------------ ------------
Total assets $784,705,574 $750,753,890
============ ============
</TABLE>
3
<PAGE> 4
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY JUNE 30, 1999 MARCH 31, 1999
- ------------------------------------ ------------- -------------
<S> <C> <C>
Current liabilities:
Current installments of long-term obligations $ 11,556,384 $ 13,743,598
Accounts payable 47,004,742 45,416,844
Interline payable and deferred revenue 8,178,691 10,130,333
Accrued lease expense 22,709,135 23,844,809
Accrued wages 11,270,018 10,192,948
Accrued expenses 18,998,282 18,845,984
Accrued taxes 36,487,152 12,586,793
------------- -------------
Total current liabilities $ 156,204,404 $ 134,761,309
Long-term obligations $ 98,270,514 $ 100,563,380
------------- -------------
Deferred income taxes $ 72,738,267 $ 70,732,267
------------- -------------
Other liabilities and deferred credits $ 14,308,901 $ 12,327,476
------------- -------------
Shareholders' equity:
Common stock, no par value, 200,000,000
shares authorized, 96,001,955 and
97,387,516 issued and
outstanding, respectively $ -- $ --
Preferred stock, no par value, 1,000,000
shares authorized, none issued or outstanding -- --
Net unrealized gain/(loss) on marketable
securities available for sale (183,852) 378,556
Retained earnings 443,367,340 431,990,902
------------- -------------
Total shareholders' equity $ 443,183,488 $ 432,369,458
------------- -------------
Total liabilities and shareholders' equity $ 784,705,574 $ 750,753,890
============= =============
</TABLE>
4
<PAGE> 5
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FY2000 FY1999
------ ------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 207,758,855 $ 178,090,035
Cargo and other 1,573,047 1,279,841
Non-airline operations 10,137,347 8,542,317
------------- -------------
Total operating revenues $ 219,469,249 $ 187,912,193
------------- -------------
OPERATING EXPENSES:
Salaries and related costs $ 39,468,299 $ 33,004,713
Aircraft fuel 16,353,697 12,595,345
Maintenance materials and repairs 13,616,437 13,737,084
Aircraft rent 21,986,728 19,990,275
Other rent and landing fees 6,172,502 5,982,558
Passenger commissions 13,873,550 13,044,261
Other operating expenses 26,533,126 22,562,689
Depreciation and amortization 7,438,553 7,514,956
Non-airline direct costs 7,963,669 5,599,621
------------- -------------
Total operating expenses $ 153,406,561 $ 134,031,502
------------- -------------
Operating income $ 66,062,688 $ 53,880,691
------------- -------------
NON-OPERATING INCOME (EXPENSE):
Investment income $ 3,683,033 $ 3,354,467
Interest expense (1,017,052) (1,839,532)
------------- -------------
Total non-operating income, net $ 2,665,981 $ 1,514,935
------------- -------------
Income before income taxes $ 68,728,669 $ 55,395,626
Income taxes 25,567,000 21,061,000
------------- -------------
Net income $ 43,161,669 $ 34,334,626
============= =============
Weighted average number of
shares outstanding - Basic (Note 3) 96,751,215 99,981,082
============= =============
Net income per share - Basic (Note 3) $ 0.45 $ 0.34
============= =============
Weighted average number of
shares outstanding - Diluted (Note 3) 98,201,161 101,335,836
============= =============
Net income per share - Diluted (Note 3) $ 0.44 $ 0.34
============= =============
Dividends paid per share $ 0.027 $ 0.027
============= =============
</TABLE>
5
<PAGE> 6
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FY2000 FY1999
------ ------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 43,161,669 $ 34,334,626
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,438,553 7,514,956
Amortization and accrual of overhaul expenses 3,512,481 3,494,519
Deferred income tax provision 1,003,165 7,274,594
Other, net (443,691) (738,865)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,334,530) 1,871,446
Decrease (increase) in inventory of
expendable parts 263,593 (989,350)
Decrease (increase) in other current assets 8,343,211 5,392,712
Increase (decrease) in accounts payable 1,587,898 (2,676,860)
Increase (decrease) in other current liabilities 22,042,411 11,743,983
------------- -------------
Net cash provided by operating activities $ 85,574,760 $ 67,221,761
------------- -------------
Cash Flows From Investing Activities:
Additions to property and equipment, net ($3,084,865) ($1,416,203)
Return of interest bearing investments 18,000,000 --
Purchases and maturities of marketable
securities, net (32,172,227) (14,834,226)
Proceeds from sale of marketable securities 9,806,484 3,795,970
Deferred costs (1,277,324) (341,560)
Other, net (1,460,607) (1,348,161)
------------- -------------
Net cash used in investing activities ($10,188,539) ($14,144,180)
------------- -------------
Cash Flows From Financing Activities:
Issuance of common stock $ 43,965 $ 68,511
Repurchase of common stock (29,205,798) (3,607,483)
Payments of cash dividends and repurchase
of fractional shares (2,623,398) (2,667,119)
Repayments of long-term obligations (4,480,080) (4,252,962)
------------- -------------
Net cash used in financing activities ($36,265,311) ($10,459,053)
Net increase in cash and cash equivalents $ 39,120,910 $ 42,618,528
------------- -------------
Cash and cash equivalents at beginning
of period $ 171,003,535 $ 156,214,247
============= =============
Cash and cash equivalents at end of period $ 210,124,445 $ 198,832,775
============= =============
Cash paid during the period for interest $ 2,475,146 $ 3,033,178
============= =============
Cash paid during the period for income taxes $ 1,538,745 $ 3,875,067
============= =============
</TABLE>
6
<PAGE> 7
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Common Comprehensive Retained
Income Stock Income (Loss) Earnings Total
------ ----- ------------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999 $ -- $ 378,556 $ 431,990,902 $ 432,369,458
--------- ------------- ------------- -------------
Repurchase of common shares (43,965) -- (29,161,833) (29,205,798)
Exercise of stock options
($2.26 weighted avg. per share) 43,965 -- -- 43,965
Dividends ($.027 per share) -- -- (2,623,398) (2,623,398)
Comprehensive Income:
Net Income $43,161,669 -- -- 43,161,669 43,161,669
-----------
Other Comprehensive Income, net of tax:
Net unrealized gain/(loss) on
marketable securities
available-for-sale (562,408) -- (562,408) -- (562,408)
-----------
Comprehensive Income $42,599,261 -- -- -- --
----------- --------- ------------- ------------- -------------
Balance, June 30, 1999 $ -- $ (183,852) $ 443,367,340 $ 443,183,488
========= ============= ============= =============
</TABLE>
7
<PAGE> 8
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Comair Holdings, Inc. and its wholly-owned subsidiaries (the Company), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. These statements reflect all adjustments which are, in the opinion
of management, necessary for a fair presentation of the results for the interim
periods presented. Certain information in footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the following disclosures are
adequate to make the information presented not misleading. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-K.
NOTE 1: The accounts of the Company have been consolidated in the
accompanying financial statements. Upon consolidation, all material
intercompany accounts, transactions and profits have been eliminated.
The Company considers the transportation of passengers and cargo in
scheduled airline service by its major subsidiary, COMAIR, Inc., to be
its predominant business segment. The Company's stock is traded in the
Nasdaq/National Market System under the symbol COMR.
NOTE 2: Results of operations for the interim periods are not necessarily
indicative of results to be expected for the year.
NOTE 3: In fiscal 1998, the Company adopted Financial Accounting Standards
Board Statement No. 128 (SFAS No. 128), "Earnings Per Share", which
replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. It also requires dual
presentation of basic and diluted earnings per share on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of both the numerator and denominator of the
basic earnings per share computation for the same components in the
diluted earnings per share computation. The following table shows the
amounts used in computing earnings per share and the effect on income
and the weighted average number of shares for the three months ending
June 30, 1999 and 1998 of dilutive potential common stock.
8
<PAGE> 9
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
1st Quarter 1st Quarter
FY2000 FY1999
----------- -----------
<S> <C> <C>
Numerator:
Net Income 43,161,669 34,334,626
----------- -----------
Denominator:
For Earnings Per Share - Basic:
Weighted Average Shares
Outstanding - Basic 96,751,215 99,891,082
Effect of Dilutive Securities:
Stock Options 1,449,946 1,444,754
For Earnings Per Share - Diluted:
Weighted Average Shares
Outstanding - Diluted 98,201,161 101,335,836
----------- -----------
Earnings Per Share - Basic $ 0.45 $ 0.34
----------- -----------
Earnings Per Share - Diluted $ 0.44 $ 0.34
----------- -----------
</TABLE>
NOTE 4: The Company operates predominantly in one business segment (air
transportation). Substantially all revenues are derived from the air
transportation of passengers and cargo in scheduled airline service.
The Company's chief operating decision maker or decision making group
assesses the operating effectiveness and financial performance of the
Company based on the results of this business segment. Additionally,
the Company does not engage in material operations in foreign countries
and no material portion of its revenues are derived from customers in
foreign countries.
9
<PAGE> 10
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5: In March 1998, the Accounting Standards Executive Board issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". This
Statement of Position (SOP) applies to all non-governmental entities
and is effective for financial statements for fiscal years beginning
after December 15, 1998. This SOP provides guidance on accounting for
the costs of computer software developed or obtained for internal use.
This SOP separates computer software development or the obtainment of
computer software into the following three stages: (1) Preliminary
Project Stage, (2) Application Development Stage and (3)
Post-Implementation/Operation Stage. The SOP also provides definitions
and criteria of costs associated with software development or the
obtainment of software for internal use as whether these costs should
be expensed as incurred or capitalized. The Company has adopted SOP
98-1 early as recommended by the Accounting Standards Executive Board
in fiscal 1999. The adoption did not have a material effect on its
financial condition, cash flows or results of operations. The Company
is in the process of developing or obtaining computer software for
internal use and will account for such costs in accordance with this
statement.
NOTE 6: In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting
for Derivatives Instruments and Hedging Activities", which requires an
entity to recognize all derivatives as either an asset or liability at
fair value. Accounting for the fair value of a derivative depends on
its designation and effectiveness. Derivatives that are not hedges must
be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. SFAS
No. 133 is required to be adopted in fiscal years beginning after June
15, 2000. SFAS No. 133 permits early adoption as of the beginning of
any fiscal quarter after its issuance. The Company does not currently
hold any derivative instruments and does not expect the adoption of
SFAS No. 133 to have a material impact on its financial condition,
results of operations, or cash flows.
10
<PAGE> 11
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Comair Holdings, Inc. (the Company) was incorporated in 1988. COMAIR,
Inc. (COMAIR), the principal subsidiary of Comair Holdings, Inc., was founded in
1977. COMAIR accounted for 95% of the first quarter operating revenues and
expenses, and is considered to be the Company's major line of business. Although
the following discussion and analysis entails various aspects of the Company's
financial performance, many of the factors that affect year to year comparisons
relate solely to COMAIR.
Inflation and changing prices have not had a material adverse effect on
COMAIR's operations because revenues and expenses generally reflect current
price levels. COMAIR's market area, strong financial position and focus on
continuously improving operating performance have helped lessen the effect on
the Company of price competition and resulting low fares when compared to many
others in the airline industry. However, changes in the pricing strategies and
increased competition from other airlines could impact COMAIR's ability to
recoup future cost increases through higher fares.
COMAIR operates as a "Delta Connection" carrier under a ten-year
marketing agreement with Delta Air Lines, Inc. (Delta) effective in October of
1989. The current agreement may be terminated by either party on not less than
one hundred eighty days advance written notice. Management is currently in
discussion with Delta and expects to extend the agreement when it expires in
October of 1999. Delta owns approximately 22% of the Company's outstanding
common stock, leases reservation equipment and terminal facilities to COMAIR,
and provides certain services to COMAIR including reservation, passenger and
aircraft handling services. Approximately 45% of COMAIR's passengers in the
first quarter of fiscal 2000 connected to Delta. The Company has historically
benefited from its relationship with Delta. However, the Company's results of
operations and financial condition could be adversely impacted by Delta's
decisions regarding routes and other operational matters, as well as, any
material interruption or modifications in this arrangement.
RESULTS OF OPERATIONS
For the first quarter of fiscal 2000 the Company reported record
operating results. Operating revenues increased to $219.5 million, up 17% from
the $187.9 million reported in the first quarter of fiscal 1999. Operating
income, net income and net income per diluted share for the first quarter of
fiscal 2000 all increased when compared with the results reported in the first
quarter of fiscal 1999. Operating income for the quarter rose 23% to $66.1
million from $53.9 million. Net income increased 26% to $43.2 million from $34.3
million, while diluted earnings per share increased 29% to $.44 per share from
$.34 per share.
The increase in earnings is largely the result of increased passenger
enplanements which has translated into higher load factors. Passenger
enplanements grew 18% over last year's first quarter levels while load factors
exceeded last year's by approximately one percentage point. This growth in
traffic clearly indicates our continuing success in attracting passengers to our
system by offering world class facilities and more regional jet service than any
other regional airline in the United States.
11
<PAGE> 12
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
CAPACITY AND TRAFFIC ANALYSIS
QUARTER ENDED
<TABLE>
<CAPTION>
6/30/99 6/30/98
------- -------
<S> <C> <C>
Passengers 1,844,400 1,563,351
ASMs (000's) 995,281 792,943
RPMs (000's) 660,907 518,536
Load factor (%) 66.4 65.4
Breakeven load factor (%) 46.2 47.1
Yield (cents) 31.4 34.3
Revenue per ASM (cents) 20.9 22.5
Cost per ASM (cents) 14.5 16.0
</TABLE>
With the increase in passengers, revenue passenger miles (RPMs) grew
27%. Capacity, as measured by available seat miles (ASMs), grew 26%. We continue
to increase capacity and aircraft utilization by replacing turboprop aircraft
and adding supplemental service and new long-haul service with our 50-passenger
Canadair Jet aircraft. Currently, approximately 90% of COMAIR's capacity is
generated by the jet aircraft.
Yield per revenue passenger mile decreased 8% from the first quarter of
last year. The decline in passenger yield was caused by an increase in the
percentage growth of discount passengers versus full fare passengers and growing
stage-lengths.
12
<PAGE> 13
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The following tables show the expense categories for COMAIR for the first
quarter of the last two fiscal years.
EXPENSE CATEGORIES
<TABLE>
<CAPTION>
QTR Ended Cents QTR Ended Cents
6/30/99 per ASM 6/30/98 per ASM
------- ------- ------- -------
<S> <C> <C> <C> <C>
Salaries and Related Costs $ 39,468,299 4.0 $ 33,004,713 4.2
Aircraft Fuel 16,353,697 1.6 12,595,345 1.6
Maintenance Materials
and Repairs 13,616,437 1.4 13,737,084 1.7
Aircraft Rent 21,986,728 2.2 19,990,275 2.5
Other Rent and Landing
Fees 6,172,502 0.6 5,982,558 0.8
Passenger Commissions 13,873,550 1.4 13,044,261 1.6
Other Operating Expenses 26,456,108 2.6 22,506,864 2.8
Depreciation and
Amortization 6,807,322 0.7 6,579,095 0.8
------------ ----- ------------ -----
$144,734,643 14.5 $127,440,195 16.0
============ ===== ============ =====
</TABLE>
Total salaries and related costs have risen from the first quarter of
last year. This increase has two main components. First, the Company has hired
additional personnel to enhance operating effectiveness and to service the
growing passenger base. The average number of employees increased 16% over last
year's first quarter levels. Finally, expenses related to the Company's
incentive compensation plans were higher due to our increased pre-tax earnings.
Unit costs, measured in cents per ASM, decreased as the result of increases in
capacity and aircraft utilization.
Aircraft fuel expense increased in total as aircraft fuel price per
gallon, including taxes and into-plane fees, for the first quarter of fiscal
2000 increased 4% to 60.9 cents from 58.6 cents a year ago.
Maintenance material and repair costs decreased in total and on a unit
cost basis. The lower unit cost was the result of increases in capacity
generated by the new jet aircraft and lower costs related to the timing of
certain scheduled inspections of the jet aircraft.
13
<PAGE> 14
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Aircraft rent expense increased in total but decreased on a unit cost
basis. The decrease in unit cost was generated by a year over year increase in
capacity and aircraft utilization. Since June 1998, COMAIR has acquired sixteen
Canadair Jets through operating leases.
Other rent and landing fees increased in total as a result of higher
landing fees generated by the addition of the larger Canadair Jets. Unit cost
decreased as the increase in capacity and aircraft utilization offset the
additional expense.
Travel agency and credit card commissions have increased in total but
decreased on a unit cost basis due to lower overall industry commission rates as
well as a slight decrease in tickets sold through travel agencies.
Other operating expenses (the principle components of which include
passenger reservation fees, aircraft and passenger handling, crew training, crew
accommodations and per diem expense, property taxes, advertising expenses and
insurance expense) increased in total but decreased on a unit cost basis. The
lower unit costs were generated by the increase in capacity and higher aircraft
utilization.
Depreciation and amortization decreased on a unit cost basis. The
decrease in unit cost is due to the additional capacity generated by the sixteen
Canadair Jets acquired through operating leases since June 1998 and higher
aircraft utilization.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers its level of cash on hand, its current ratio and
working capital levels to be its most important measures of short-term
liquidity. In terms of long-term liquidity indicators, the Company believes its
ratio of long-term debt to equity and its historical levels of cash generated
from operations to be the important measures.
14
<PAGE> 15
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
In the first three months of fiscal 2000, the Company generated cash
from operating activities of $85.6 million. Total working capital increased to
$228.6 million from $213.4 million at March 31, 1999, while the current ratio
decreased to 2.46 from 2.58. The Company repurchased 1.4 million shares of
common stock at a cost of $29.2 million, repaid long-term obligations of $4.5
million and paid cash dividends of $2.6 million. The Company's long-term debt to
equity position was 18% debt, 82% equity at June 30, 1999, as compared to 19%
debt, 81% equity at March 31, 1999. During the first three months, the Company
had net property and equipment additions of $3.1 million. In addition, during
the first quarter, the Company received repayments related to prior interest
bearing investments from an aircraft manufacturer of $18.0 million. In fiscal
2000, additional capital for repayment of long-term obligations, planned
dividend payments and other capital expenditures are expected to be provided by
operations.
In fiscal 1995, the Board of Directors authorized the Company to
repurchase up to 20.8 million shares of common stock from time to time as market
conditions dictate. During the first quarter of fiscal 2000, the Company
repurchased 1.4 million shares of common stock at a cost of approximately $29.2
million. Since June 30, 1999, the Company has repurchased approximately 400,000
additional shares of common stock at a cost of $9.3 million. To date, under this
authorization, the Company has repurchased 15.6 million shares at a cost of
approximately $165.0 million.
COMAIR took delivery of four new generation, 50-passenger Canadair Jet
aircraft during the first quarter of fiscal 2000 bringing the total Canadair Jet
fleet to 79 aircraft. For 20 of the 79 aircraft, the financing includes the
right to return the aircraft after seven years with no cost to COMAIR other than
normal and customary return provisions related to the condition of the aircraft.
For the remaining 59 aircraft, 10 aircraft were financed with debt, one was
acquired with available cash, while the other 48 aircraft were financed through
operating leases with terms of up to 16.5 years.
As of June 30, 1999, COMAIR had scheduled delivery positions for
thirty-one 50-passenger Canadair Jets to be delivered through fiscal 2002, at an
aggregate cost, including support equipment and estimated escalation, of
approximately $574 million. COMAIR also has delivery positions for twenty
70-passenger Canadair Jets. The aggregate cost of the 70-passenger aircraft,
including support equipment and estimated escalation, is expected to be
approximately $500 million. COMAIR is scheduled to take delivery of its first
70-passenger jet at the end of calendar 2001. In addition to this outstanding
firm order, COMAIR has options for 115 additional aircraft, valued at
approximately $2.8 billion including support equipment and estimated escalation,
which could be available for delivery in 2001 through 2007.
The Company has broken ground on approximately $40 million in new
construction and facility upgrades, which include a new corporate headquarters,
additional maintenance and training facilities, and improvements to passenger
facilities at the Greater Cincinnati/Northern Kentucky International Airport.
This construction is expected to be completed by the end of calendar year 2000.
15
<PAGE> 16
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
COMAIR expects to finance the aircraft and construction described above
through a combination of available cash, lease, equity and debt financing, and
the utilization of manufacturers' assistance to the extent available. COMAIR
believes that financing will be available at acceptable rates. If COMAIR is
unable to obtain acceptable financing terms, it could be required to modify its
aircraft acquisition and expansion plans. Currently, there are new regulations
by the FAA relating to operating specifications and aircraft certification.
Based on a review of these regulations, the Company does not believe the impact
will be material to its financial condition, future operating results, or cash
flows.
COMAIR has collective bargaining agreements with the Air Line Pilots
Association (ALPA), representing COMAIR's pilots, and the International
Association of Machinists and Aerospace Workers (IAM), representing COMAIR's
maintenance employees. COMAIR's collective bargaining agreement with the ALPA
became amendable on June 1, 1998 and the collective bargaining agreement with
the IAM became amendable on June 1, 1999. Renegotiation of these collective
bargaining agreements is currently underway. In addition, the Company and the
ALPA have jointly agreed to request assistance from the National Mediation Board
to facilitate the negotiation of their collective bargaining agreement. In
September 1998, the International Brotherhood of Teamsters (IBT) was certified
as the collective bargaining representative of the flight attendants of COMAIR.
COMAIR is also in negotiations with the IBT. At this time, the negotiations of
these collective bargaining agreements have not progressed to the stage that
would enable the Company to comment on any possible effects of the negotiations.
As a result, the Company cannot anticipate what effect the negotiations will
have on its financial condition, results of operations or cash flow.
YEAR 2000 READINESS
The Company depends on many internal and external information
technology systems that were not originally designed to process dates beyond
1999. The Company has developed a Year 2000 Readiness Program to ensure that its
systems will function properly in the Year 2000 and thereafter. With the
assistance of an experienced outside consultant specializing in the aviation
technology field, the Company has formulated a plan to address all information
technology requirements that could be impacted by any potential Year 2000
issues. Our Year 2000 Readiness Program focuses on our internal information
technology and operating systems (IT Systems); non-information technology
systems (Non-IT Systems); and third party vendors and suppliers. These areas
specifically include, but are not limited to, those that are critical and
essential for the Company to continue operations without interruption. The
Company's Year 2000 Readiness Program consists of the following five phases: (1)
Identification & Awareness, (2) Assessment, (3) Remediation, (4) Testing and
Validation, and (5) Quality Assurance Review.
The Company has completed the first two phases of its Program for all
of its IT Systems. The Company has substantially completed the Remediation phase
and has entered into the Testing phase of its IT Systems, which include software
applications, hardware and infrastructure that are essential for aircraft
maintenance; flight operation management; revenue management; finance systems,
which includes revenue accounting; internal communication systems and facility
management. The Company expects to complete the remaining phases by September
1999.
16
<PAGE> 17
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The Company has completed the first three phases of its Program for all
of its Non-IT Systems with embedded technology such as aircraft onboard support
systems. The Company expects to complete the remaining phases by September 1999.
As indicated, the Company has also assessed Year 2000 issues concerning
its relationships with third parties. The Company has identified vendors and
suppliers that were defined as critical to our business, and has initiated
formal communications with those suppliers and vendors. These third parties
include the suppliers of infrastructure critical to the airline industry, such
as the air traffic control and related systems of the Federal Aviation
Administration (FAA), the U.S. Department of Transportation (DOT), and airport
authorities. Other critical third parties on which the Company relies include
other airlines, suppliers of aircraft fuel, utilities, communications services,
aircraft maintenance parts suppliers and other airline reservation systems. The
Company has polled its critical third parties regarding their Year 2000 plans
and state of readiness. The Company has received responses from a majority of
its critical third party suppliers and vendors. Most of the respondents assured
the Company that their systems are or will be Year 2000 ready. We have also been
involved in industry efforts led by the Air Transport Association (ATA) and the
Regional Airline Association (RAA) in addressing Year 2000 issues concerning
third party relationships. The progress of each of their Year 2000 Programs is
being monitored based on information provided to us by them and information
available through industry sources. The failure of third parties to remediate
their respective systems could have a material adverse effect on the Company's
financial condition, cash flows and results of operations. To the extent
practical, the Company intends to seek alternatives for third party vendors and
suppliers that have not responded to their Year 2000 Readiness by September
1999.
The Company estimates that the overall cost of the Year 2000 readiness
activities could approximate $3 million. This cost includes hardware and
software upgrades, consultant fees, and internal staffing salaries for our
employees involved in the Program. The total cost of the Program through June
30, 1999 was approximately $1,480,000 and has been charged to other operating
expense.
The Company is revising and developing business continuity plans for
its most critical processes to address internal and external issues related to
the Year 2000 problem to the extent practicable. Revisions to these plans are
expected to be completed by September 1999. These plans, which are intended to
allow the Company to work around potential disruptions, could include carrying
additional inventories for fuel and flight essential components; performing
certain processes manually; changing suppliers; and reducing operations. The
Company believes that since the Year 2000 issues are so widespread in nature,
the contingency plans will be continually adjusted as new information becomes
available.
17
<PAGE> 18
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The Company is currently of the opinion that its material processes and
systems, to the extent within its control, will be Year 2000 ready in the time
frame mentioned. However, there can be no assurance that the Company's internal
systems, equipment or third parties on which the Company relies will be Year
2000 ready in a timely manner or the Company's or third parties' contingency
plans will mitigate the effects of any noncompliance. The failure of the systems
or equipment of the Company or third parties (which the Company believes is the
most reasonably likely worst case scenario) could result in the reduction or
suspension of the Company's operations and could have a material adverse effect
on the Company's financial condition, cash flows and results of operations.
FORWARD - LOOKING STATEMENTS
Several of the statements contained in this report are "forward-looking
statements" as that term is defined in federal securities laws. The actual
results could vary materially from those described in those statements. Factors
that could cause actual results to vary are described in detail in our reports
to the Securities and Exchange Commission including Exhibit 99 of this Form 10-Q
for the period ending June 30, 1999 and are also discussed in the "INTRODUCTION"
and "YEAR 2000 READINESS" sections of the "MANAGEMENT'S DISCUSSION AND ANALYSIS
ON FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 99 - Forward-Looking Statements
---------------------------------------
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which
this report is filed.
19
<PAGE> 20
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMAIR HOLDINGS, INC.
August 13, 1999 BY: /s/ RANDY D. RADEMACHER
---------------------------------
Randy D. Rademacher
Senior Vice President Finance
Chief Financial Officer
20
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<PAGE> 1
EXHIBIT 99
SAFE HARBOR
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor from civil litigation in many instances for forward-looking statements.
Such statements must be accompanied by meaningful cautionary statements that
identify important factors that could cause actual results to differ materially
from those that might be projected. This exhibit to the Registrant's Form 10-Q
is being filed in order to adhere to the provisions of this Act by providing the
following cautionary statements:
Risk Factors Affecting Comair Holdings, Inc.
- --------------------------------------------
The Company's business operations and strategy are subject to a number
of uncertainties and risks which could cause the actual results to differ
materially from projected results. It is not possible to list all of the many
factors and events that could cause the actual results to differ materially from
the projected results. Such factors may include, but are not limited to:
competitive factors such as the airline pricing environment, the capacity
decisions of other airlines, and the presence of low-cost, low-fare carriers;
the willingness of customers to travel; general economic conditions; changes in
jet fuel prices; availability of aircraft; unplanned increases in financing or
other costs; higher employment costs resulting from the amendment of collective
bargaining agreements; effects of the Year 2000 problem; continued low
unemployment levels; and/or actions by the United States and foreign
governments.
